Xtranormal Videos Run Rampant on Web, Make Their Way to TV

Startup Rolls Out Characters That Look a Lot Like Steve Jobs, Steve Ballmer and Andy Rubin

LAS VEGAS (AdAge.com) -- Geico's slick CGI gecko is getting competition from some adorably low-fi characters. The insurance giant's ad agency, Martin Agency, has now made several TV commercials starring Xtranormal's adorably low-fi cartoon characters spouting robotic dialogue. The punchline: 15 minutes is enough time to get a quote from Geico, and, as one spot puts it, "15 minutes is exactly the amount of time we put into this commercial."

It's getting harder and harder to avoid videos created with tools from the Montreal-based startup, which allows anyone to create cartoons by typing simple text. Several of these videos have gone truly viral on the web this year -- "iPhone4 vs HTC Evo" has more than 11 million views -- and the collected works have become a YouTube staple; users have made more than 9.4 million videos since Xtranormal released its tools onto the web last year. At least one newscast has used Xtranormal's tools and characters to dramatize news events. Google and Unilever have also used Xtranormal to create internal training videos.

The company is still largely pre-revenue, but it's working out a "freemium" strategy it hopes will prove lucrative. Last year its approach resembled the model at the casual-gaming giant Zynga, which lets users do a lot for free but charges for extra goodness. Anyone could make an Xtranormal video gratis, but some paid for enhancements such as custom characters, scenes and movements.

At the end of December, however, Xtranormal switched to a system that requires users to buy points to make videos; new users get a certain number of points free when they sign up for the site so they can try it for free.

You might recognize these characters
Xtranormal is now rolling out a new slate of characters that it hopes the tech set will pay to use: a group of tech-y types that bear more-than-passing resemblance to Steve Jobs, Steve Ballmer and Google's Android guru Andy Rubin.

New Xtranormal characters that resemble Apple CEO Steve Jobs, Google VP of engineering Andy Rubin and Microsoft CEO Steve Ballmer.
The company didn't originally consider itself a consumer play. It started out in 2006 intending to create a storyboarding tool to sell to filmmakers and studios. "They spent about a year going around to the pro studios and animation houses to sell the product," said CEO Graham Sharp. "The problem with selling to the pro community is no matter how many prepackaged characters you have you won't have the one they want."

Mr. Sharp, who had been consulting with the company but joined as full-time CEO in January 2010, decided to try offering it to consumers, whom he guessed would have fewer qualms -- especially if it was free. Xtranormal raised additional money, added an e-commerce engine to allow it to sell virtual goods and threw open the doors in May.

Less than a year later, Xtranormal has 2 million registered users, most of whom use the site and tools for free but some of whom pay for premium characters. It's early to be sure, but Mr. Sharp believes that between 1% and 2% will become paying users, about the rate that end up paying for enhancements to free games. The bet is that the tool scales from 20,000 to 40,000 paying users today to something, well, bigger.

Fuel for consumer-generated content
"On the one hand we are in the long tail of video in that we allow people to make their own video at low cost," Mr. Sharp said. "The other is we're making blogs interesting by making a movie as easy as typing text."

Some users are placing ads on their videos, as is YouTube, where the majority of these videos are distributed. That means there's a business model for creators as well as distributors.

Xtranormal doesn't take an interest in the advertising. "The writer owns the end result," Mr. Sharp said. "The more videos that are made the more people who will buy virtual goods. At the moment we don't want to conflict with the writers and the guys who carry the distribution."

The making money part is where the premium characters come in, like Messrs. Jobs, Rubin and Ballmer. Xtranormal was careful not to make their likenesses too good and not to charge too much to use them. "We don't want to be sued by these guys," Mr. Sharp said. "The current thinking is we fit into the parody law. Anyone who appears in a cartoon or newspaper to me is fair game to have a cartoon made of them in the online world."

Seeking new funding, partnerships
Some see Xtranormal as a potentially significant business. "The business model around this content could only exist on the web: content costs are free, consumers buy virtual items (i.e., 100% gross margin) as revenue stream, distribution/traffic costs are zero, and advertising emerges at scale," wrote David Pakman, a partner at venture capital firm Venrock, in a DigitalNext blog post.

The company, which has 30 employees, is in the midst of raising a second round of funding that it hopes to complete by April. It plans to use the funds to add servers and developers to do the kind of rendering required to make the tools richer.

It also hopes that hundreds of millions on Facebook and YouTube might eventually use its technology to create and publish video more and more easily. "We're working on some partnerships now we hope will explode our user-base," Mr. Sharp said.